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EXHIBIT 17(b)(4)
[JANNEY MONTGOMERY SCOTT LOGO]
Supplemental Presentation to the
Board of Directors of
Kentek Information Systems, Inc.
September 10, 1999
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Background
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o Per the SEC's request, Janney Montgomery Scott has performed an
additional Discounted Cash Flow Analysis ("Modified DCF Analysis").
o In preparing the Modified DCF Analysis, we:
- combined Kentek's adjusted cash as of June 30, 1999 with the
calculated "going concern" value of Kentek (i.e. did not
discount cash as we did in our Supplemental Presentation dated
August 13, 1999)
- used the Status Quo Projections prepared by the Company in
connection with our Supplemental Presentation dated August 13,
1999
o This Modified DCF Analysis differs from the DCF Analysis in the
Supplemental Presentation dated August 13, 1999, in that we used the
adjusted cash balance as of June 30, 1999, as oppose to discounting back
to present value the cash balance at the end of the projection period.
o The Modified DCF Analysis and an updated valuation summary reflecting
this additional analysis are presented on the following pages.
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2 JANNEY MONTGOMERY SCOTT
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Discounted Cash Flow Analysis
Kentek Information Systems, Inc.
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PROJECTED
------------------------------------------------------------ TERMINAL
06/30/00 06/30/01 06/30/02 06/30/03 06/30/04 VALUE
-------- -------- -------- -------- -------- --------
Sales $ 23,699 $ 17,495 $ 13,283 $ 9,128 $ 6,123
(DELTA) in A/R 399 765 519 512 370
-------- -------- -------- -------- --------
Cash Sales 24,098 18,260 13,802 9,640 6,493
Cost of Goods Sold 12,323 9,097 6,907 4,746 3,184
(DELTA) in Inventory (1,376) (1,105) (750) (740) (535)
(DELTA) in A/P 135 318 216 213 154
-------- -------- -------- -------- --------
Cash Cost of Goods Sold 11,082 8,311 6,373 4,220 2,803
Cash Gross Profit 13,016 9,949 7,429 5,420 3,690
Operating Expenses 7,870 5,785 4,815 3,595 2,465
Depreciation & Amortization (564) (300) (300) (300) (200)
-------- -------- -------- -------- --------
Cash Operating Expenses 7,306 5,485 4,515 3,295 2,265
Cash Operating Income 5,710 4,464 2,914 2,125 1,425
Less: 37.5% Pro Forma Tax on Taxable Net Income 1,315 980 585 295 178
Less: Capital Expenditures 361 260 200 200 200
-------- -------- -------- -------- --------
Unlevered FCF to Capital Providers $ 4,034 $ 3,224 $ 2,129 $ 1,631 $ 1,048 $ 1,348(2)
Interest Expense Tax Shield -- -- -- -- --
NPV of Unlevered FCF(1) $ 8,484
Add: NPV of Tax Shields --
Unlevered FCF to Capital Providers --
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SUGGESTED VALUE $ 8,484
'Going Concern' Per Share Value $ 1.78
Add: Cash Per Share Value 7.51
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SUGGESTED PER SHARE VALUE $ 9.29
EBITDA MULTIPLE RANGE
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0.0x 1.0x 2.0x 3.0x 4.0x
----- ----- ----- ----- -----
12.5% $9.31 $9.39 $9.47 $9.55 $9.63
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DISCOUNT 15.0% $9.23 $9.30 $9.38 $9.45 $9.52
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FACTOR 17.5% $9.16 $9.22 $9.29 $9.35 $9.42
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RANGE 20.0% $9.09 $9.15 $9.21 $9.27 $9.33
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22.5% $9.03 $9.08 $9.14 $9.19 $9.24
(1) Unlevered Free Cash Flows discounted at 17.5%, with only 75.1% of Year 1
Unlevered FCF (and Tax Shields) being captured.
(2) Assumes a terminal value equal to last year EBITDA of $.7 million
multiplied by an EBITDA multiple of 2.0x.
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3 JANNEY MONTGOMERY SCOTT
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Per Share Equity Valuation - Summary
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[GRAPH]
Comparable Company Analysis
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Revenue $ 7.38
EBITDA $ 4.01
EBIT $ 6.61
P/E FY+1 $ 6.65
Status Quo P/E FY+1 $ 10.85
P/E FY+2 $ 4.48
Status Quo P/E FY+2 $ 9.11
Comparable Transactions
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Revenue $ 10.25
EBITDA $ 6.37
EBIT $ 5.12
DCF
- ---
Buyout Analysis $ 7.93
DCF $ 6.99
Modified DCF $ 9.29
Liquidation
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Net Assets $ 6.65
Dollar amounts represent median values.
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4 JANNEY MONTGOMERY SCOTT
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Conclusion
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o Based on the Modified DCF Analysis, Janney Montgomery Scott notes that
the $8.29 per share value of the consideration to be received by the
Public Stockholders represents an equity value which is below the
valuation range of the Modified DCF Analysis, and that this fact did not
support a determination that the consideration to be received in the
Merger is fair to the Public Stockholders from a financial point of
view.
o Ten of the fourteen valuation parameters reviewed by Janney Montgomery
Scott produced median per share equity values lower than the $8.29
Merger Consideration (range of medians: $4.01 to $10.85)
o The Modified DCF Analysis does not change the original opinion of Janney
Montgomery Scott that the Merger is fair from a financial point of view
to the Public Stockholders of the Company.
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5 JANNEY MONTGOMERY SCOTT
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